On a theoretical level, managers run the firm. But they are supposed to run it on behalf of their shareholders. In reality, however, we admit that it seems as though the firm actually belongs to management. Most investors view stocks as an investment vehicle rather than as an ownership stake of a firm. Investors don't really feel as though the CEO is working for them. Indeed, management often does not act like they are beholden to the shareholders.
Some active shareholders have tried to exercise their influence as owners in attempts to influence management, but they have often been met with defeat. The recent evidence on the unsuccessful outcomes of shareholder proposals is quite telling. Shareholders have at their disposal the power to make proposals that can get voted on at the annual shareholders meeting. There are generally two types of proposals: those that are governance oriented (e.g., suggesting changes in board structure) and those that are social-reform oriented (e.g., proposing to stop the selling of chemicals to rogue countries ). However, only about half of all shareholder-initiated proposals make it far enough in the process to get voted on. When there is a vote, they usually get rejected.  A huge factor in whether a proposal is successful depends on management's opinion. Without management approval, proposals have little chance of succeeding. Why? It has generally been the case that shareholders have trusted management to know what is best for the firm (or at least they used to feel this way!). That is, most shareholders will go along with whatever management wants.
For a different illustration of management control and influence, consider the recent merger between Hewlett Packard (HP) and Compaq.  Carly Fiorina, the Hewlett Packard CEO, announced on September 4, 2001, that HP would acquire Compaq for $25.5 billion. The stock markets, industry experts, and business media reacted negatively to the news. What is particularly noteworthy is that David W. Packard and Walter Hewlett, both significant shareholders (when including the Packard Foundation, they owned 18 percent of HP's stock) and sons of HP's founders, were also strongly opposed to the acquisition. In fact, they took out newspaper ads asking other HP shareholders to vote against the merger. Fiorina went ahead with her plan, despite the attacks from both Packard and Hewlett, and on March 19, 2002, most of the other shareholders voted in favor of the acquisition ”despite the fact that HP's stock price had fallen significantly since Fiorina took over as CEO. The price had also fallen since the merger announcement, indicating that investors were wary of the deal. HP's stock was down 18 percent following the September 4, 2001, announcement, and even Compaq's stock declined by 10 percent following the announcement, which is very rare for a target firm. Nevertheless, shareholders voted with management's wishes and approved the acquisition. Even if some investors want to have an influence on business strategy and direction, it is management that controls the firm.